The politics and economics of Saudisation

[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] T [/yt_dropcap]he rent-based economy in Saudi Arabia has shown its limits since the drop of oil prices in 2014. Indeed, the country is potentially explosive: the current fiscal model is not sustainable, the geopolitical environment is increasingly hostile and the country has a rapidly growing population, of which 30% of 16-24 year olds find themselves unemployed. The economic choices in the years to come, and the success of the reforms announced by the government will be decisive for the survival of the regime.

For too long, Saudi Arabia’s economy has relied solely on oil for its revenues. Until 2014, oil exploitation was responsible for 90% of Saudi Arabia’s public revenues, 80% of its exports revenues and 40% of its GDP. But from 2014 to 2015, oil revenues dropped by 50%, and represented only 73% of the total revenues compared to 87% the year before. In the meantime, the government didn’t reduce its expenses, because of its military interventions in Yemen and Syria, but also because of the outstanding individual premiums given by the government. Following the Arab Spring, the government has increased its social expenses in order to buy social peace.

To tackle the economic difficulties, Prince Mohammed Bin Salman has announced, on the 26th of April 2016, an ambitious set of reforms, titled « Vision 2030 » which aimed at weaning the kingdom off oil by curbing public spending, diversifying the economy and attracting foreign investment. The government is conscious of the necessity to reform the economic system, but will it be able to do it without causing social turmoil? With a decline in social spending and a reduction in subsidies comes the risk of rising domestic turmoil, as highlighted by the Arab Spring in 2011. The risk is increased by the fact that half of the population is under 25, and 30% of young people are unemployed. This inactive youth is also among the most active in the world on the social media and might show their frustration through media outlets. Will the government be able to take the gamble of social change?

Saudi Arabia has shown pragmatism when it promised a 4,6% cut in production on November 30th, 2016. This measure was necessary since its plan to modernise the economy and privatise Saudi Aramco, the state oil company, depends on oil prices. Paradoxically, Saudi Arabia needs higher oil prices to become less dependent on oil on the long term. Other measures taken by the government include slashing salaries, and cutting benefits for public sectors employees. It has also cut huge subsidies for fuel, water and electricity that encourage overconsumption. However, the sudden jump of water bills spurred national dissatisfaction and an outcry on social media. Indeed, the minister of water and electricity was fired after telling customers to dig their own wells if they were unhappy with prices. The government also abruptly cut construction projects forcing contractors to fire workers who didn’t hesitate to set fire on buses in protests demanding months of back pay. Despite these incidents, most austerity measures have been taken according to Capital Economics, a consultancy.

However, investors are waiting for more meaningful changes, which imply conjectural reforms and a transformation of the social structures. In order to increase the presence of Saudi nationals in the labour market, the government implements a politics of Saudisation particularly in the private sector. For now, only 45% of jobs in Saudi Arabia are occupied by Saudis, and only 22% in the private sectors versus 67% in the public sector. Including them in the private sector is necessary to reduce unemployment but also to cut public spending, since salaries in the public sector constitute the most expensive expenses of the State. A “Saudisation” of the labour market is necessary, but needs a complete transformation of student’s trainings. For now, most of them study humanities and social sciences and focus primarily on the study of the Koran. But it doesn’t bring them the necessary skills to work in a commercial environment. The politics of Saudisation has vexed businesses who are forced to employ Saudi nationals, who often lack the skills that employers want. Consequently, to meet the government quotas, some companies simply pay locals to stay at home.

Moreover, the increase of the population presents new challenges. Six million people are going to join the labour market from now until 2040. Thus, job creation in the private sector is necessary, to prevent a rise of unemployment and the subsequent risk of social tensions. For now, the private sector does not offer enough good opportunities for the estimated 300,000 young people entering the work force each year, especially women. If nothing is done, the situation will become even more critical because of the important rise of the population.

“Vision 2030” shows that Saudi Arabia is conscious about the necessity to reform the country’s economy. Its cut in social spending, the plan to introduce a tax on expenses by 2018, and –more importantly- its plan to privatise the state oil company Saudi Aramco are very positive. However, too many measures, such as the plan to attract foreign investments, are still under study and lack details. The success of Saudi Arabia’s economic reforms is crucial to the West, who needs a stable Saudi Arabia in an already chaotic Middle East.

Saudi Crown Prince Mohammed bin Salman al-Saud, and UAE Crown Prince Mohammed bin Zayed al-Nahyan, are close friends and allies, who jointly lead the war against Houthi-led Yemen. On Sunday afternoon, November 18th, a leading Turkish newspaper, Yeni Şafak, reported the two leaders to have also collaborated in hiding the murder on October 2nd in Istanbul of Washington Post columnist Jamal Khashoggi.

Yeni Şafak headlined “Dahlan ‘cover-up team’ from Lebanon helps hide traces of Khashoggi murder” and reported that on October 2nd, “A second team that arrived in Istanbul to help cover-up the murder of Saudi journalist Jamal Khashoggi was dispatched by Muhammed Dahlan, UAE Crown Prince Muhammed bin Zayed’s chief hitman in the region, … according to an informed source who spoke to Yeni Şafak daily on the condition of anonymity.”

Bin Salman and bin Zayed are U.S. President Donald Trump’s closest foreign allies other than, possibly, Israel’s Prime Minister Benjamin Netanyahu. All four men are determined that there be regime-change in Shiite Iran. This anti-Shia position bonds them also against the Houthis, who are Shiites, in Yemen, where bin Salman and bin Zayed lead the war, and the United States provides the training, logistics, and weapons. Both bin Salman and bin Zayed are fundamentalist Sunnis who are against Shia Muslims. Israel and the United States are allied with these two princes. Saudi Arabia’s royal family have been committed against Shia Muslims ever since 1744 when the Saud family made a pact with the fundamentalist Sunni preacher Mohammed ibn Wahhab, who hated Shia Muslims. Thus, Saudi Arabia is actually Saudi-Wahhabi Arabia, with Sauds running the aristocracy, and Wahhabists running the clergy.

In 2017, in Saudi Arabia’s capital of Riyadh, Trump sold, to the Saudi Crown Prince, initially, $350 billion of U.S.-made weapons over a ten-year period (the largest weapons-sale in world history), and $110 billion in just the first year. That deal was soon increased to $404 billion. For Trump publicly to acknowledge that Salman had “ordered Jamal Khashoggi’s assassination” would jeopardize this entire deal, and, perhaps, jeopardize the consequent boom in America’s economy. It also would jeopardize the U.S. alliance’s war against Shiites in Yemen.

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Revisiting the Qatari crisis

In 2017 the dispute between Qatar and a number of its neighbours Saudi Arabia, Egypt, the UAE and Oman has considered as the most serious crisis since years and could escalate in the future to destabilise an already turbulent region. The Qatari support to the extremist parties and terrorist entities in the region is the apparent reason, however, conflicting of interest between Qatar and the other states about the Iranian relations, the political Islam and the competition over the regional leadership are the main reasons. Egypt, Oman and the UAE with the leadership of Saudi Arabia withdrawing diplomats, closing borders, announcing a number of Qatari citizens as terrorist supporters and place an embargo on Qatar and most of its interests and businesses in the region.

The primary reason for the Saudi’s camp blockade is the Qatari politically and financially support for violent extremist groups often affiliated with the Muslim Brotherhood which considers as a real threat for the other GCC states in particular because of the ability of these group to create a secretive organisation with extreme religious behaviour. However, Qatar is relatively weaker in terms of politically and militarily than the Saudi’s camp, but it has continued to support its Islamist allies for many reasons: ideological sympathy; a believe that political Islam could reflect into Qatar’s influence in the region; a desire to challenge the traditional regional influence especially Saudi Arabia and its followers. In addition, Qatar has used its owned media tool the Aljazeera channel to magnify the Muslim Brotherhood influence and to criticise leaders in Cairo, Riyadh and Abu Dhabi which has been the major thorn in the relations.

The Qatari-Iranian close tie is the second source of tension which seen by other GCC states as a threat to the stability and even the existence of the Sunni majority states in the Gulf. The growing Qatari Iranian relation is evident in many occasions such as the Qatari voting against the UNSC resolution that calling on Iran to stop its nuclear enrichment project and the signing of Qatari Iranian agreement in counterterrorism cooperation which is a Qatar approach to benefit from the Iranian forces due to the modest Qatari military capability. Moreover, the Amir of Qatar called the Iranian President Hassan Rouhani and congratulated him on his re-election on April 2017. Finally, Qatar paid the amount of $700 for Kataab Hezbollah Iraq (Iranian baked militia) for the exchange of a member of the Qatari royal family who has been a hostage in Iraq, (probably falsely) was the act that irritated most of the GCC states and triggering the crisis.

The Trump’s administration policy in the region gives Riyad, Cairo and Abu Dhabi the green light to punish Qatar for its support to the Islamic movement. Trump expressed a passive acceptance to the Saudi and its allies in an attempt to contain the greedy Iranian strategy in the region and to confront the rising of the radical Islam. However, it seems that Saudi and its allies are unqualified for such a containment scheme to Iran the giant regional power. Trump also took credit on Twitter and describe the Qatari Amir as “high-level founder of terrorism.” Thus, the blockade can see as an attempt from the Saudi’s camp to push Qatar back to the line, an opportunity to satisfy their allies in Washington and to shift the public opinion to the Qatari issues instead of many internal issues and shortcoming.

The crisis involved a number of unpredictable stakeholders with huge interests in the region which could turn the situation into uncontrollable in many ways. The blockade camp clearly desires that Qatar recognise how serious they are, rapidly back to the line and admit unambiguously their list of demands which include shutting down Aljazeera, end the cooperating with Iran, stop supporting the Islamic parties and recognise the Saudi leadership in the GCC region. On the other hand, Qatar with its relatively small population 300,000 citizens and fund over $300 billion ensures the state will never face a serious financial issue in the future. Moreover, Qatar is the home of the U.S. air base Al-Udeid which is a critical component of the U.S. campaign in the Middle East. Therefore, Qatar knows that the U.S. has an immediate interest in emphasising the stability and the security in Qatar in particular while the U.S. does not have an alternative to Al-Udeid base to support its strategy in the Middle East. The Saudi’s camp is unlikely to abandon their demands. The crisis shows how much the GCC leaders are threatening and in a confusing situation toward support specific radical Islam movements and relation with Iran. In addition, the blockade camp can maintain the sanctions for a long time rather than take a military action due to its economic cost and the lack of suitable capabilities to conduct such a war. For instance, the Saudi campaign in Yemen now and after three years, shows a significant failure to achieve its strategic goals.

The current situations for both sides show that the crisis could easily continue for more years which is a critical concern to all the stakeholders in the region. Now Iran and Turkey are playing a significant role in supporting Qatar needs of foods and goods to minimise the inconvenient of the embargo. Also, Ankara is considering enhancing its military presence in Qatar which seen as a direct threat to Saudi Arabia the major regional compotator for the Turkish influence. That also shows a high possibility of an Iranian Turkish large-scale involvement in case of a military confrontation.

The U.S. mission should focus on balancing the support to the Gulf States and their core interests as well as supporting the stability by avoiding encouraging them from adopting a risky diplomatic offensives options that can backfire into the whole region. It seems that the U.S. should adopt nuanced diplomacy to end the crisis which is not that simple for the current U.S. administration. Since the conflicting parties of this crisis will not likely find a comprehensive solution on their own, the U.S. should make it a priority to help them do so before the costs of the dispute continue to escalate in unpredictable ways.

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Saudi sports diplomacy is proving to be a mirror image of the kingdom’s challenged domestic, regional and foreign policies.

Overlorded by sports czar Turki al-Sheikh, Saudi sports diplomacy, like the kingdom’s broader policies, has produced at best mixed results, suggesting that financial muscle coupled with varying degrees of coercion does not guarantee success.

Prince al-Waleed was one of the more recalcitrant detainees among the scores of members of the ruling family, prominent businessmen and senior officials who were detained a year ago in Riyadh’s Ritz Carlton Hotel as part of Prince Mohammed’s power and asset grab.

Prince Al-Waleed said on Twitter at the time that he was “responding to the invitation of my brother Turki al-Sheikh.”

Mr. Al-Qahtani, who was recently fired as Prince Mohammed’s menacing information czar in connection with the killing of journalist Jamal Khashoggi in the Saudi consulate in Istanbul, was banned this week from travelling outside the kingdom. Mr. Al-Sheikh has not been linked to the Khashoggi murder.

Nevertheless, his sports diplomacy, exhibiting some of the brashness that has characterized Prince Mohammed as well as Mr Al-Qahtani’s approach, has largely failed to achieve its goals. If anything, it appears to have contributed to the kingdom’s growing list of setbacks.

Those goals included establishing Saudi Arabia as a powerhouse in regional and global soccer governance; countering Qatari sports diplomacy crowned by its hosting of the 2022 World Cup; projecting the kingdom in a more favourable light by hosting international sporting events; becoming a powerhouse in soccer-crazy Egypt, the Arab world’s most populous nation; and using the competition for the 2026 World Cup hosting rights to bully Morocco into supporting the Saudi-United Arab Emirates-led boycott of Qatar.

If adopted, the plan would enhance Saudi and Emirati influence in global soccer governance to the potential detriment of Qatar, the host of the 2022 World Cup. Saudi Arabia and the UAE spearhead a 17-month old economic and diplomatic boycott of Qatar designed to force it to surrender its right to chart an independent course rather than align its policies with those of its Gulf brothers.

The piracy has sparked international lawsuits, including international arbitration in which BeIN is seeking US1 billion in damages from Saudi Arabia. The company has also filed a case with the World Trade Organization.

FIFA has said it has taken steps to prepare for legal action in Saudi Arabia and is working alongside other sports rights owners that have been affected to protect their interests.

“No one, no one at all — with all due respect to Turki or no Turki … will be allowed to interfere in the club’s affairs,” said Mahmoud el-Khatib, chairman of Egyptian club Al Ahli SC, one of the Middle East’s most popular clubs with an estimated 50 million fans. Mr. Al-Sheikh had unsuccessfully tried to use his recently acquired honorary chairmanship of Al Ahli to take control of the club.

Al Ahli’s rejection of his power grab persuaded Mr. Al-Sheikh to resign in May and instead bankroll Al Ahli rival Pyramid FC. He invested US$33 million to acquire three top Brazilian players and launch a sports channel dedicated to the team.

Adopting a Saudi Arabia First approach, Mr. Al-Sheikh noted that the United States “is our biggest and strongest ally.” He recalled that when the World Cup was played in 1994 in nine American cities, the US “was one of our favourites. The fans were numerous, and the Saudi team achieved good results.”

That was Mr. Al-Sheikh’s position six months ago. Today, men like Prince Mohammed and Messrs. Al-Sheikh and Al-Qahtani are seething. US President Donald J. Trump is proving to be an unreliable ally. Not only is he pressuring the kingdom to come up with a credible explanation for Mr. Khashoggis’ killing, Mr. Trump is also seemingly backtracking on his promise to bring Iran to its knees by imposing crippling economic sanctions.

Saudi distrust is fuelled by the fact that Mr. Trump first asked the kingdom to raise oil production to compensate for lower crude exports from Iran and then without informing it made a 180-degree turn by offering buyers generous waivers that keep Iranian crude in the market instead of drive exports from Riyadh’s arch-rival down to zero.

Seemingly cut from the same cloth as Prince Mohammed, Mr. Al-Sheikh, drew his pro-American definition of Saudi Arabia First from the crown prince’s focus on the United States. Prince Mohammed, Mr. Al-Sheikh and other senior Saudi officials may be considering whether putting the kingdom’s eggs primarily in one basket remains the best strategy.

Whatever the case, Mr. Al-Sheikh’s sweep through regional and global sports has left Saudi leaders with little to leverage in the kingdom’s bid to pick up the pieces and improve its image tarnished first and foremost by Mr. Khashoggi’s killing but also by the trail the sports czar has left behind.